Caretaking Tips: 6 Common Money Questions

Get info you need to keep finances in order when caring for an aging parent

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Every day when I open my mailbox, I find questions from caregivers and, quite often, from those being cared for, all wanting to know the same thing: how to afford elder care. What I tell everyone is to arrive at the retirement years with as much information, resources and money as possible. And then to never be content to sit back and assume anything—because if there's one thing we can count on when it comes to healthcare and caregiving, it's that things are changing all the time. As for specifics (because, truly, that's the information everyone really needs), here are the answers to their most common questions.

A: Start by having "the Talk," where you and your siblings sit down with your parents to discover how they want to manage their sunset years. Ask them: What are their resources and liquid assets should they need care? Where are these assets located? Who are the beneficiaries of life insurance policies, annuities and retirement accounts? Where do they want to live should they need assistance? Whom would they like to act as their agent should they be unable to make financial or end-of-life decisions?

One option is for your parents to make you and your adult siblings co-owners on their bank and brokerage accounts, and put your names on the titles to all of their illiquid assets like real estate. This would give all of you full rights of ownership. Then, should your parents become unable to manage their financial affairs, you and your siblings would make decisions for them, liquidating their resources as necessary to pay their medical costs. Though this sounds good, the process is not always easy, says Kenneth Labowitz, an attorney who practices elder law in Alexandria, Virginia. Parents are often reluctant to give up control of their finances, and if they do add their children's names to the property title, for example, then want to sell the property to help pay for medical costs, they'll have to get the children to agree to the sale, which the kids don't always do. And by adding the kids' names to the property title, parents can also jeopardize their Medicaid eligibility.

So, if your parents have any assets, suggest a meeting with an elder-law attorney in your area. This may be the best money your family will ever spend. (The initial fee will probably run you a few hundred dollars. After that, fees may be hourly or based on the specific services rendered.) The attorney will look at the big picture and make recommendations for the best ways to maximize and protect your parents' resources, as well as whether there needs to be a cosigner on accounts, and whether or not your parents need long-term care insurance. Then he'll make sure that all legal documents are properly drawn up, executed and recorded in the appropriate county and state. This is particularly important because if you and your parents have not taken care of how you want things to be done, the court can appoint a decision-maker regarding their property and end-of-life directives, which is an expensive and time-consuming process to fight. Photo: Jamie Grill/Getty Images

Q: What is long-term care insurance and when should my parents get it? Should I get it for myself?

A: long-term care insurance (LTC) was developed to protect seniors and their assets from the raging costs of nursing homes and home-based healthcare. By purchasing insurance, policyholders can cover the costs of long-term care services that are not covered by traditional health insurance or even Medicare (such as assistance with everyday tasks like getting dressed when you have a physical or cognitive impairment like dementia). LTC covers care at home, in a nursing home or in an assisted-living facility.

The problem is, long-term health insurance can be very expensive. So expensive, in fact, that LTC insurance providers such as John Hancock, Genworth, and Bankers Life and Casualty recently have asked for rate increases of up to 40 percent, while one of the biggest long-term care insurance providers, MetLife, has announced it has stopped writing new LTC business.

If your parents (or you) choose to buy the insurance, they'll need enough income to pay the premiums for the rest of their lives. In 2007 the average annual premium paid for long-term care insurance for a person age 40 to 49 was $1,781; age 70 and older, $3,026.

"The best time to purchase LTC insurance is when you're young enough to get lower premiums, healthy enough to pass medical underwriting and wealthy enough to pay premiums," says Bonnie Burns, training and policy specialist for California Health Advocates, the leading Medicare advocacy and education organization in California. Even if you're only in your 40s, it's not too soon to start thinking about it. The downside? "If you buy it when you're young and healthy, you will pay a lower annual premium, but you'll pay it for a longer period of time. And if you cannot continue to pay these premiums until you need care, you may lose your coverage or have to reduce benefits," says Burns. If you wait until you're closer to retirement age, you'll pay a much higher annual premium (assuming you can pass any medical underwriting— LTC insurers only insure healthy people). If you wait until just before you think you might need long-term care, you may be uninsurable because of your health and age. Really, it comes down to this: If your parents can qualify for LTC insurance and they have the means to pretty much guarantee they'll be able to keep up with those big premiums, they should seriously consider getting it. As for you, many employers now offer a group LTC benefit option that can be more economical than buying it on your own, so ask your employer before you do anything. Photo: Thinkstock

Q: I quit my job to care for my mother, who has been diagnosed with Alzheimer's. Can I get paid by Medicare or reimbursed by the state for being her live-in caregiver?

A: "Medicare does not pay anything to family caregivers for home-provided care, particularly the kind of custodial care needed by people with dementia or Alzheimer's disease," says Labowitz. If you need the income, however, there are ways you may be able to get paid:

1. If your mother has low income and few assets, she may qualify for a program called Cash & Counseling that is offered in 15 states to Medicaid recipients who receive would pay her directly for some of her caregiving, and she could then use that money to pay you. Learn more about the program at CashandCounseling.org.

2. Become a Certified Nursing Assistant (CNA certification is available through some adult education and community colleges, and is a very short course of study) and work for an agency that services patients with special needs for which your mother may qualify.

3. Have her attorney or financial planner set up a plan by which you are paid a salary from her assets if she has any.

4. If she has limited financial resources but owns her house, you could file a claim with the estate for your custodial services to be paid from the estate once she passes and her estate is settled.

In the meantime, contact your local Area Agency on Aging, listed in the government section of your phone book or online at N4A.org. This agency offers a variety of resources that can give you a little time off and home help. Photo: Thinkstock

A: Most people start out paying for nursing home care with their own savings and by liquidating their assets. According to the 2010 Market Survey of Long-Term Care Costs by MetLife insurance, the average national rate for nursing home care in a semiprivate room for one person is $205 per day. That's $74,825 annually, and we know prices are skyrocketing. Once their resources are depleted, your parents may qualify for two different federal programs: Medicaid and Medicare.

Medicaid is a federal government program for low-income, financially needy people, and is administered differently in each state. In some states, Medicaid charges consumers small amounts for certain services, but more often than not, nursing home care is fully covered. Medicaid benefits are based on need, though whether or not you qualify is based on eligibility rules in your state. So if your parents exhaust all of their financial resources (the dollar amount varies by state; California allows a Medicaid recipient to have no more than $2,000 in the bank) and are found to be eligible, they can select a facility that accepts Medicaid patients. (Not all facilities do.) Local agencies might be able to assist you with finding a facility.

So two people living in the exact same nursing home facility receiving the same care could pay two very different fees. One could be on Medicaid, paying $400 a month, while the other pays $6,000 out of her own pocket, says Kelly A. Thompson, an elder care attorney in Arlington, Virginia. While Medicaid will not afford your parents anything close to luxury, it provides reasonable care and comfort.

Medicare, on the other hand, is health insurance that was created by the government to deal with the high medical costs older citizens face during their years of reduced earning power. Unlike Medicaid, Medicare is not tied to individual need. Rather, it is an entitlement program—your parents are entitled to Medicare be cause they paid for it through Social Security taxes. Medicare does cover a limited amount of time in a nursing home, provided that it's in conjunction with recovery from a hospital stay, but it's limited to just 100 days per hospitalization. Medicare consists of two parts: Part A covers inpatient hospital services, posthospital extended care services, home-health and hospice services. Part B, which you must qualify for, covers doctor visits, diagnostic tests, medical equipment, ambulances, and outpatient physical and speech therapy.

Although at some point your parents may qualify for and receive coverage from both Medicare and Medicaid, they must meet separate eligibility requirements for each program. If they qualify for both, Medicaid will pay for most or all of their Medicare Part B premiums. Then all but about $60 (it ranges from $30 to $95 depending on the state) of their Social Security checks and other income each month will be used to cover their copays. Photo: Thinkstock

Q: If my parents still own their home, will they qualify for medical assistance programs like Medicaid?

A: They might. If your parents own their home and at least one of them is living in it, most states will not consider its value as a financial resource when it comes to qualifying the spouse for Medicaid. The state would not want the spouse living at home to become impoverished simply because his or her spouse is now living in a nursing home at Medicaid's expense. However, if neither owner is living there, in most states the home's value is considered a financial resource, which could then disqualify them from Medicaid benefits. They would need to sell the home and use those proceeds to pay for their care. Once all resources are exhausted to the required level, they would qualify for Medicaid.

There are ways, through estate planning and the use of trusts, that your parents can protect their properties and assets in anticipation of qualifying for Medicaid. But Medicaid is no magic bullet. Keep in mind that Medicaid is the lowest possible level of healthcare. Living conditions aren't always what you might consider acceptable. And for your parent to plan to appear impoverished to protect your inheritance seems less than ethical— shouldn't assets first and foremost be used for care?

States also have what they call a look-back period. Your parents can't simply give away their property and begin receiving Medicaid. During the qualification process, Medicaid will examine your parents' financial history for a given period— the past five years, in most states. If they sold their home within the five-year period, then used the money to pay for their living expenses, that would be reasonable and acceptable. But if they sold the house and then gave the money to their grandkids, they could be disqualified from Medicaid benefits until that money is recovered and used to pay for their medical care. Or if they simply deeded their home to family members, and two years later applied for Medicaid, it could be denied because the property is still seen as the applicant's financial asset. Photo: Thinkstock

Q: I read that the healthcare reform legislation signed into law in spring 2010 includes long-term care and living assistance benefits. How can I get this for my mom?

A: the new long-term care provision, called the Community Living Assistance Services and Supports Act (CLASS Act), is still on the drawing board. The CLASS Act is part of healthcare reform legislation, but regulations have not yet been written, so no one knows the details for sure. Regulations for it must be issued no later than October 1, 2012, by law, and we will know more then.

In the meantime, there are some things we know about the CLASS Act: It will be an insurance program for all Americans who are actively working and are age 18 or older. Employers will be able to sign up their employees automatically, and premiums (the Congressional Budget Office estimates that average premiums will be $123 per month—lower for younger people, higher for older people) will be handled through payroll deductions. The program is not mandatory— meaning you can opt out. The plan will pay a cash benefit of, on average, $50 per day. Since there is a five-year vesting period, claims are unlikely during the first few years of the program. The CLASS Act is not intended to pay the full cost of long-term care, but rather to offer some assistance with costs that many health insurance programs do not cover. Photo: Thinkstock

Reduce Longterm Health Insurance Costs

Do your research. All policies are different, so read the fine print. How long must you be unable to handle the activities of daily living before you are eligible to make a claim? Must you be in a nursing home for the policy to cover your care? Consult with an attorney or insurance professional to find out which policy is best for you, but make sure the person is unbiased—meaning they're not the one selling the policy.

Limit the time. Limiting your policy to, say, two or three years of benefits could drop the premium significantly, making this type of insurance coverage more affordable while giving you the peace of mind you seek. So think about just how much coverage you can afford. While everyone wants lifetime coverage, few people can afford the premiums, and some companies no longer sell lifetime coverage.

Increase the waiting period. If you go for an LTC policy that begins paying out after, say, 30 days following your need for longterm care, you'll pay a lot more than if you extend that period to 90 or 120 days. Consider the Tax Benefits LTC insurance comes two ways: tax-qualified and nonqualified. Tax-qualified LTC policies are considered a form of health insurance, so the annual premium can be added to your medical expenses on your federal tax return if you itemize. If you're looking into LTC, check with a tax professional.